How JustAnswer Works:

Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.

Get a Professional Answer

Via email, text message, or notification as you wait on our site.Ask follow up questions if you need to.

100% Satisfaction Guarantee

Rate the answer you receive.

Ask Jax Tax Your Own Question

Jax Tax, Tax Attorney

Category: Tax

Satisfied Customers: 1377

Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions

59761513

Type Your Tax Question Here...

Jax Tax is online now

Hi, I had a VA loan which I allowed to be assumed by a buyer

Resolved Question:

Hi, I had a VA loan which I allowed to be assumed by a buyer approximately 25 years ago. That buyer defaulted on the loan and as a result I lost my full VA home buying benefit. I still have a VA Certificate of Eligibility (COE) but to reinstate the full house buying benefit, I have to pay off $25,000 the VA got stuck with because the guy who assumed my loan defaulted on it. My question is this: If I pay off the $25,000 to get back my benefit, would it be tax deductible since the defaulted mortgage had nothing to do me?

Jax Tax :The Max amount you could take is the lower of the taxable capital gain reported or $25,000.

Jax Tax :If you had a profit but qualified under sec 121 not to be taxed, you cannot take any deduction because you got the profit tax free.

Jax Tax :If you had no profit, you cannot take the loss if it was a personal residence because losses on personal residences is not allowed.

Customer:

I no longer have the tax records from the sale of that home. I do remember the transaction was with a realtor of the new home where I agreed to purchase the new home if the realtor would take the trade of my old home for the new home. The realtor agreed and then sold the home to the new buyer and got my consent to take over my VA loan. I don't remember if there were capital gains or not, it was a unique transaction. Was there a law on capital gains for personal residence 25 years ago?

Jax Tax :That is the answer to your question. You have find the records some how. Federal law requires you keep records so long as needed in respect to claiming a loss or deduction. If you can claim it, it is a sch D long term capital loss.

Jax Tax :Maybe the preparer has it. You can use form 4506t to request a copy from the IRS but there is only a small chance they have it.

Jax Tax :Yes, there was tax then.

Customer:

It seems odd that my having to pay for someone else's bad debt in order to get my benefit back is connected to the sell of the house. The house was actually sold to the realtor and had nothing to do with the realtor's transaction with the new buyer i.e. I did not sell the house to the buyer, the realtor sold it after I traded it. I just allowed the buyer to assume my VA loan. Can you think of any other possible recommendations of pursing a remedy?

I see. Of you traded it, you still recognized gain in the value of the home. For example, if you purchase it for a $1 and when traded it was worth $20, you would have received the benefit of the $20 current fair market value. You could have fettered the gain under section 1031 transferring the original basis to the new home decreeing the capital gain until the new home was sold. In that case, you would increase your basis in the new home by $25k if you paid the debt. Again, this would be on the return 25 years ago. You have to know how and what was reported. Reason is that if you only had a gain of $10k and this $25k of unpaid loan was factored, you would have had a loss of $15k. Since it was your personal residence, you would not have been able to claim the loss. That is why you cannot now claim the loss tied to your personal residence unless you had taxable gain on the sale. If you elected sec 1031, current basis increase would be the way you account for the $25k payment which would differ the benefit until your current home is sold. Anyway you slice it, you have to have that return.

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. OrvilleHesperia, California

JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions

X

Ask a Tax Professional

Get a Professional Answer. 100% Satisfaction Guaranteed.

128 Tax Professionals are Online Now

Type Your Tax Question Here...

characters left:

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.